Trading in Commodity Exchanges

The food commodities are being traded in the commodity exchanges. Futures trading is conducted in the commodity exchanges recognized under the provisions of the Forward Contracts (Regulation) Act, 1952. The list of food commodities traded at the commodity exchanges is listed below:

The Government has not put a ban on future trading on food items to check rising prices of food articles. The commodity futures market is a mechanism for price discovery and price risk management. The futures market discovers the prices that are likely to prevail in future. Several studies have observed that futures’ trading does not lead to price rise. The report submitted (April 2008) by the Committee set up by the Government under the Chairmanship of Prof. Abhijit Sen concluded that there is no causal relationship between futures trading and inflation. The Reserve Bank of India (RBI), in its Annual Report for the year 2009-10 concluded that forward trading was not the reason for inflation in the prices of commodities in India. The report stated that commodity prices in India seem to be influenced more by other drivers of prices changes, particularly demand-supply gap in specific commodities, the degree of dependence on imports and international prices movement in these commodities. An independent study in 2012 by Dr. Ashok Gulati, reported that for the period from 1995-96 to December 2012, three factors explain the price rise (inflation) in the Food Articles Index (FAI) in India, ie., fiscal deficit, global food inflation and domestic farm wages.

Further, the Froward Markets Commission has put in place a number of measures to address undue price volatility. These are as under:

1. Market-wide open position limits: Restrictions on open positions have been imposed in such a manner that no single individual/entity or group of individuals/entities, acting in concert, would be able to corner the market or influence the price discovery process.
2. Daily price fluctuation limit bands or circuit limits: These limits are linked to historical spot market movements and discourage unbridled movement of prices in variance with the market fundamentals.
3. Additional and Special margins: Additional and Special margins are imposed by the exchange or the Commission in case of undue price volatility.
4. Most of the agricultural contracts have a compulsory delivery logic with a staggered delivery period of 10 (ten) days to bring about better convergence with the physical markets

In addition, the Forward Markets Commission calls for daily report from the Exchanges and takes other pro-active steps to ensure that there is no misuse of the futures market and that the futures prices discovered on the platform of the exchanges reflect broadly the demand and supply fundamentals.

This information was given by the Union Minister of Finance, Shri Arun Jaitley in written reply to a question in Lok Sabha today.